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Monthly Archives: November 2009

Former head of the Financial Services Regulatory Commission (FSRC) Leroy King said his legal troubles in the Stanford matter are taking a heavy toll on his already failing health, but he’s hanging in there on the strength of his innocence.

The veteran banker, who once held the title of ambassador, spoke with OBSERVER for the first time since his indictment by the US Securities and Exchange Commission in June.

While declining to comment on his connection to the alleged Ponzi scheme run by Texan businessman R Allen Stanford, King spoke with this reporter about the impact the last six months have had on him.

He disclosed that he suffered from cancer of the oesophagus and severe gastro-oesophageal reflux disease, both of which required very exacting and demanding treatment regimens.

The US wants King extradited to answer charges that he failed to exercise the required oversight, choosing to look the other way in exchange for lucrative bribes and favours from Stanford.

While legal processing of the US extradition request is pending, King must report daily to a local police station, and it’s this that he finds physically draining, given his state of health.

Careful to point out that he wasn’t complaining, he said he saw no reason why the authorities could not modify the requirement to once a week, since everyone knows him, and for sure he’s not going anywhere.

In addition to his travel documents having been surrendered, two appointed sureties must be able to vouch for his whereabouts at any given time the authorities may enquire.

King, who maintains his innocence, said the restrictions on his movements, the impact that the daily trips to the police station were having on his health care regimen, and the unfamiliar experience of facing criminal charges, were undeniably stressful.

Prior to the ongoing episode, he said, he’d never been accused of or prosecuted for any crime.

The veteran banker, now in his early 60s, said he’d been strictly advised by his lawyer against speaking to the media about any aspects of the case or the specific legal complaints against him.

But he did express sadness about what he said were media reports and even official statements that effectively put him on trial or made him out to be culpable, since the case is yet to be heard in court.

Despite all this, Leroy King said, he was enabled to cope with the present trying circumstances by a combination of faith in God and the assurance of his own innocence in the Stanford matter.

In the aftermath of the R. Allen Stanford case, some local investors are asking: Where was the State of Texas?

Investors who lost money in the Houston financier’s alleged Ponzi scheme now say the state’s financial oversight was too lax.

“We have the right to know what the (Texas State Securities Board) knew and when they knew it, details of their past investigations, and why they didn’t disclose anything to the citizens of Texas all these years,” Austin investor Annalisa Mendez said.

In fact, the state looked into Stanford’s dealings years ago.

The Securities Board wrote a memo in the mid-1990s, expressing concern “that the high return rates and commissions for CDs made it difficult for the Stanford bank to make a legitimate profit on the CDs,” according to a September Financial Industry Regulatory Authority report on the aftermath of both the Bernard Madoff and Stanford cases.

FINRA is a private corporation that provides regulatory oversight of all securities firms nationwide.

Texas Securities Commissioner Denise Voigt Crawford mentioned the securities board’s involvement with the Stanford case in Feb. 20 testimony to the state Senate Committee on Finance, just after the scandal broke.

“We looked at him about 10 years ago, because there was evidence of potential money-laundering,” Crawford said in response to a question from state Sen. Steve Ogden, R-Bryan.

The FBI and the Securities and Exchange Commission took the case, “which is what should have happened,” she said. “But why it took 10 years for the feds to move on it, I could not answer.”

The SEC has been criticized by investors who say the agency didn’t do enough, quickly enough, to stop Stanford.

In 2003, some Stanford employees told the SEC they suspected fraud at the company.

In 2005, the SEC’s Fort Worth office started an informal investigation into the sale of certificates of deposit by Stanford International Bank, which is based in Antigua.

But it was not until this past February that the SEC sued Stanford, alleging he was running a “massive Ponzi scheme” based on fraudulent CDs.

The SEC’s inspector general concluded in a report that the agency had fulfilled its duty to check out accusations against Stanford.

The report found that the agency’s inquiry was “hampered by a lack of cooperation” from Stanford and his attorneys, as well as by jurisdictional obstacles and obstruction by regulators in Antigua.

Stanford’s attorney, Kent Schaffer, denied that his client had operated a Ponzi scheme, saying that money from the CD program was invested in a “wide range of investments.”

What caused the losses were the government’s lawsuit and fraud investigation, which prompted a run on the bank, he said.

The alleged Ponzi scheme perpetrated by American turned Antiguan citizen, R. Allen Stanford, will force a restructuring of the country`s financial system.

Antigua and Barbuda`s Governor General, Dame Louise Lake-Tack, on Monday said the country`s financial laws will be amended to ensure adequate monitoring and strict compliance with anti-money laundering requirements.

Lake-Tack made the comments during her annual speech to Parliament laying out the government`s agenda. `The Financial Services Regulatory Commission will be seeking amendments wherever necessary to the legislative and regulatory frameworks that buttress our off-shore financial regime,` said the GG.

Amendments will be made to the International Business Act, The Money Laundering (Prevention) Act, and The Proceeds of Crime Act.

She also used her speech to accuse Stanford of compromising Antigua`s regulatory integrity.

Stanford is awaiting trial in a Houston jail on charges that he allegedly defrauded some 28,000 investors out of $7 billion by selling them what U.S. authorities say were bogus certificates of deposits from the Antigua-based Stanford bank.

Antigua`s National Honors Committee recently voted unanimously to revoke Stanford`s title for embarrassing the nation.

Some of alleged swindler Allen Stanford’s investors, including baseball star Johnny Damon, will see their funds returned after a U.S. appeals court ruled the receiver in the fraud case may not sue them.

Ralph Janvey, the receiver in the Stanford civil fraud case, had filed a lawsuit to recover “clawback” proceeds from several hundred investors in the firm’s offshore bank, which prosecutors say is at the heart of a $7 billion Ponzi scheme.

Stanford, 59, faces civil and criminal charges for leading the alleged scheme related to certificates of deposit (CDs) issued by Stanford International Bank Ltd in Antigua.

Janvey has argued that Stanford clients who redeemed their CDs in the weeks before civil fraud charges were filed, unfairly cashed out and were paid with money stolen from other investors.

But the Fifth Circuit Court of Appeals in New Orleans said in a ruling late on Friday that Janvey had no right to sue the investors and the funds, which have been frozen by a lower court’s order since February, should be released.

“We were pleasantly surprised that the receiver has indicated his intent to release the money and not pursue further appeals in this matter,” Gene Besen, an attorney who helped recoup $9.5 million for seven current and former Major League Baseball players.

Other baseball players snared by the alleged Stanford fraud who will have their funds released include famed former major league pitcher Greg Maddux and J.D. Drew, an outfielder with the Boston Red Sox.

Stanford Financial Group sponsored numerous leagues and teams in such sports as cricket, golf, tennis, basketball, polo and sailing.

About $275 million in proceeds from certificates of deposit have been frozen in accounts at Bank of New York Mellon Corp’s (BK.N) Person LLC, JP Morgan Chase & Co (JPM.N) and SEI Investments Co (SEIC.O), according to court documents.

“The Receiver will continue to carry out his duty to recover assets traceable to the Stanford fraud for the benefit of all investors by pursuing recovery of, where cost justified, improper and/or preferential payments of estate funds,” a lawyer for Janvey said in an email.

The U.S. Securities and Exchange Commission, which filed the civil fraud charges, had also opposed Janvey’s lawsuit, saying it penalized innocent investors.

“He (Janvey) viewed these funds, which were already frozen, as low-hanging fruit and the Fifth Circuit slapped him back on this money grab,” Jacob Frenkel, a former SEC enforcement lawyer and now a partner at Shulman, Rogers, Gandal, Pordy & Ecker.

ST. JOHN’S, Antigua — A group of investors is urging an Antiguan court to remove a British accounting firm appointed to collect assets of a Caribbean offshore bank at the center of an alleged Ponzi scheme by Texas financier R. Allen Stanford.

Martin Kenney, a lawyer for the group led by Florida businessman Alexander Fundora, said his clients have asked the High Court of Antigua to remove Vantis Business Recovery Services as liquidator because a Canadian court found earlier this year that it had deleted data from computers in the Montreal branch of Stanford International Bank Ltd.

“In order to recover and apportion the bank’s assets in the fairest and most efficient way possible for the victims of this apparent grand fraud, it is crucial to have Vantis removed and replaced as soon as possible,” Kenney said Friday from the British Virgin Islands.

Vantis was appointed by Antiguan authorities to liquidate the assets of Stanford International Bank. A spokeswoman for the firm did not immediately return a telephone call Saturday.

Kenney said that Vantis wiped out original data on computers in the Stanford bank’s branch in Montreal, Quebec, in March, without the authority of the Canadian courts and without notifying the Quebec financial regulator.

The Superior Court in Montreal ruled in September that Vantis deliberately misled the court, destroyed original computer data, and removed financial information. Vantis operated with “questionable motives,” Judge Claude Auclair wrote in the Sept. 11 judgment.

The Canadian court subsequently replaced Vantis with Ralph Janvey, a lawyer appointed by U.S. courts to liquidate Stanford assets.

Vantis and Janvey have been fighting for jurisdiction over the assets, frustrating investors who are eager to recover money they invested in what U.S. authorities have alleged as a massive Ponzi scheme.

Stanford, once a benefactor of the Antiguan government, is in a Texas jail awaiting trial on charges including money laundering and fraud.

Prosecutors accuse Stanford of leading a $7 billion Ponzi scheme by promising inflated returns to about 28,000 investors on certificates of deposits. The U.S. Securities and Exchange Commission said he instead used the money from new investors to pay off old ones. They also accuse him of skimming more than $1 billion to fund his lavish lifestyle

Hundreds of millions of dollars belonging to residents of Louisiana and other states are leaving court control and headed to their owners, people associated with the Stanford fraud debacle said Wednesday.What’s being returned at this point, however, is just a fraction of the more than $7.2 billion alleged to have been looted by Texas promoter Robert Allen Stanford and some of his associates.“This was almost like somebody who had a guillotine hanging over their head,” said Phillip W. Preis, a Baton Rouge attorney for several people retrieving their money. “It was like someone had given them a reprieve from a death penalty.”Stanford, 59, is under indictment and in federal custody in Houston, accused of orchestrating frauds against nearly 30,000 investors.Preis estimates that as much as $1 billion of that loss was suffered by approximately 1,000 residents of the Baton Rouge, Lafayette and Covington areas.Dallas lawyer Ralph S. Janvey, the court-appointed receiver responsible for locating and seizing Stanford assets, froze about $894 million in funds remaining in approximately 600 investor accounts after Stanford’s operations were shut down in February.Janvey had planned to distribute that money on a pro rata basis to about 4,000 bilked investors in this country and another 25,000 in other nations.But the Securities and Exchange Commission, which had recommended Janvey’s appointment, argued there is no legal basis to seize funds from innocent investors who did not know their money had been poured into a fraudulent scheme.And a three-judge panel of the 5th U.S. Circuit Court of Appeals ruled Friday in New Orleans that the SEC’s position was correct.The 5th Circuit ordered Janvey to return the investor funds.Janvey could have appealed the decision to the entire 5th Circuit or the U.S. Supreme Court.But he posted a notice on his Web site Tuesday that “investor accounts previously subject to the freeze order are now available for release.”The one exception, Janvey notes, covers funds frozen in the accounts of former Stanford brokers and employees. The receiver’s claim on that money continues, he says in his Internet posting.Retirees and other investors had waited since February to retrieve their remaining money, but Preis said many were more stunned than celebrative this week.

“There was no joy,” Preis said. “Just relief.”

Some investors with Stanford lost everything, while other investors have varying amounts of money that remain in certain Stanford accounts.

Central resident Debbie Dougherty and her husband, Ken, had more than $500,000 at stake in the dispute with Janvey.

Dougherty said she and her husband filed for return of that money on Monday and are hoping that it will arrive this week.

Preis said the process may take slightly longer, between five and seven business days.

For investors who lost all of their savings to Stanford’s companies, the 5th Circuit’s decision was devastating.

Blaine Smith, of Baton Rouge, lost $1.5 million. He said Janvey’s plan, while painful to those who did not lose all of their investments, would have provided some money to all innocent investors.

The 5th Circuit judges “just did the same damn thing that Allen Stanford did,” Smith said. “They took money from us and gave it to others.”

Smith said he now will lend support to efforts by Louisiana’s congressional delegation to have the SEC order the broker-funded Securities Investor Protection Corp. to provide up to $500,000 for each defrauded Stanford investor. SIPC already has provided $534 million for victims of convicted New York investment promoter Bernard L. Madoff.

As for his fellow Stanford investors who now recover some or all of their money from Janvey, Smith said he bears no grudges.

“I’m glad for them,” Smith said. “At the same time, it just kills us.”